Investor Lawyers Blog

SEC Files Microcap Fraud Cases Alleging Fake IPO-Related Penny Stock Sales

Published on: December 27, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is barring a number of market participants from the penny stock industry for their involvement in a number of purportedly fake initial public offerings of microcap stocks. The regulator says that investors were bilked because of these schemes.

Among those barred is Newport Beach, CA securities attorney Michael J. Muellerleile. He is accused of authorizing misleading and bogus registration statements that were employed in fake IPOs for several microcap issuers. The statements were generated to purportedly move unrestricted penny stock shares to offshore market participants. Muellerleile’s firm, M2 Law Professional Corp, attorney Lan Phuong Nguyen, and American Energy Development Corp. CFO Joel Felix are also charged in this microcap fraud case.

Nguyen allegedly signed misleading and false legal opinion letters. Felix is accused of making misleading and false statements. Earlier this month, the regulator suspended trading in American Energy Development.

Merrill Lynch, UBS, & Morgan Stanley Are Among Firms Ordered to Pay Investors Approximately $30M Collectively Over Puerto Rico Bond Fund Losses in 2016

Published on: December 26, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Even after more than three years since the Puerto Rico bonds and closed-end bond funds originally dropped in their initial value, many investors are still waiting to recoup losses they sustained from investing in these securities. Meantime, the U.S. territory continues to deal with its financial woes as it struggles to pay back its $70 billion of debt. At Shepherd Smith Edwards and Kantas, our Puerto Rico municipal bond fraud attorneys have worked hard this year in helping our clients, who are among the thousands of investors from the Commonwealth that suffered significant losses when the island’s securities plunged in value in 2013, in trying to recoup their money.

Below is a recap of some of the significant claims recovered for Puerto Rico investors this year that made the headlines:

A Financial Industry Regulatory Authority (FINRA) Arbitration panel ordered Morgan Stanley (MS) to pay a New Jersey widow over $95,000. Morrisa Schiffman accused the broker-dealer of making unsuitable recommendations to her, as well as of inadequate supervision and disclosure failures. Her FINRA Panel ultimately agreed.

Merrill Lynch was ordered to pay $780,000 in restitution to customers who invested in Puerto Rico closed-end bond funds and municipal bonds. FINRA found that the brokerage firm did not have the proper procedures and supervisory systems in place to ensure that all of the transactions were suitable for a number of these investors. Customers affected, in particular, are those with holdings that were heavily concentrated in Puerto Rico municipal bonds, as well as with holdings were highly leveraged via loan managed accounts or margin. FINRA said that from 1/2010 through 7/2013, 25 leveraged customers who had moderate or conservative investment objectives and modest net worths saw the securities they’d invested in sustain aggregate losses of nearly $1.2M. The customers had at least 75% of their assets in Puerto Rico securities that were ultimately liquidated to meet margin calls.

Ex-NY Pension Fund Portfolio Manager and Broker are Criminally Charged in Alleged $2B Pay-to-Play Scam

Published on: December 26, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Federal Prosecutors in Manhattan have filed criminal charges against Navnoor Kang, a former investment manager at the New York State Common Retirement Fund, and broker Deborah Kelley. The two of them are accused of directing over $2B in business to two broker-dealers in return for bribes, including money, expensive jewelry, cocaine, Paul McCartney concert tickets, prostitutes, and other lavish expenses. This is the latest “pay-to-play” scam involving the state’s pension fund, which is the third largest in the US.

Kang, who previously served as managing director at Sterne Agee Group Inc., allegedly accepted over $100K in bribes for purportedly leveraging his role as director of fixed income for the pension fund to send up to $2.5B in state business to Kelley and another broker, Gregg Schonhorn of FTN Financial Securities Corp. As a result of Kang sending this business their way, Kelley and Schonhorn made millions of dollars in commissions.

Schonhorn has already pleaded guilty to his involvement in the pay-to-play scam. According to prosecutors, in 2014, Schonhorn’s firm did $1.5M in business with the NY pension fund. By 2016, that figure was at over $2.3B. Kelly’s broker-dealer, meantime, went from having no business with the New York pension fund in 2014 to $179M in business this year.

Mortgage Fraud Settlements Reached With Deutsche Bank for $7.2B, Credit Suisse for $5.3B

Published on: December 24, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The US government has arrived at multibillion-dollar settlements with Credit Suisse Group AG (CS) and Deutsche Bank AG (DB) to settle allegations involving toxic securities. It also has filed a separate lawsuit against Barclays (BARC) over its alleged sales of toxic mortgage-backed securities.

In the Deutsche Bank case, the US Justice Department had sought $14B to settle allegations that the bank sold investors toxic mortgage securities. Now, the German lender will have to pay $3.1B immediately. It has promised to pay $4.1B over five years to a US consumer relief fund. However, Deutsche Bank remains under investigation by US and UK regulator over suspect trades involving Russian stock, foreign exchange rate rigging, precious metal-related price violations, and alleged violations of US sanctions against number of countries, including Iran.

In the settlement with Credit Suisse, the bank will pay a $2.48B penalty and $2.8B in relief to communities and homeowners impacted by the drop in home prices during the financial crisis. The consumer relief will be paid over five years.

Texas Ponzi Scams: Oil Co. Owner Is Indicted by a Federal Grand Jury, CEO of Texas First Financial is Charged in Internet-Related Fraud, and Texas REIT United Development Funding Remains in Trouble

Published on: December 24, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Texas First Financial CEO is Arrested For Fraud

Authorities have arrested Bobby Eugene Guess, an ex-Texas-based registered representative and the CEO and founder of Texas First Financial, for financial fraud. Guess promoted himself as a financial expert through financial seminars and radio promotions in the Dallas-Fort Worth area.

He is accused of running a Ponzi scam online involving two companies—StaMedia Inc., which is a Dallas company, and TenList Inc. According to the Texas State Securities Board, Guess was indicted for money laundering, securities fraud, theft, and taking part in organized criminal activity involving the multi-million-dollar sales of investments in an internet ad company.

Prosecutors contend that Guess and others sold $6M in investment contracts, stock certificates, and notes in Stamedia Inc. Also, he allegedly raised millions of dollars from Stamedia investors from ’14 to ’16 but did not disclose that the company’s net income and revenue were negligible. Investor funds were allegedly used to pay earlier investors the returns they were promised.

CFTC Orders Convergent Wealth Advisors Ordered to Pay $800K Securities Fraud Fine

Published on: December 23, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Commodity Futures Trading Commission says that Convergent Wealth Advisors must pay a civil penalty of $800K related to a commodity pool run by its former CEO David Zier. Zier committed suicide in 2014. That was also the year that a regulatory probe was begun around the private fund ZAM LLC that Zier operated.

Convergent compliance personnel staff were the ones who noticed that there were inconsistencies in some ZAM performance reports and account statements. In its securities case, the CFTC said that from 12/2010 and until Zier’s passing, there were $2.9M in fraudulent solicitations involving the private fund.

According to the CFTC, Zier put out false statements and made fraudulent representations to clients about the pool, which he ran as an outside business activity while working as an agent for the registered investment adviser. Zier purportedly represented ZAM as profitable even though it had sustained significant losses. He also allegedly made up performance data, which he gave to investors, to hide the losses.

Whistleblower Cases: SEC Issues Almost $1MK Award to Another Tipster, JPMorgan is Defendant in IRS Whistleblower Case Involving Pension Funds, and Prudential Stops Selling Certain Term Life Insurance Policies Through Wells Fargo Following Employees’ Lawsuit

Published on: December 23, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission said that it has awarded a whistleblower over $900K for a tip that allowed the regulator to bring multiple enforcement actions. The regulator announced the award just a days after it awarded another whistleblower $3.5M, also for coming forward with information resulting in an enforcement action.

Since 2012, the regulator’s whistleblower program has awarded about $136M to 37 individuals. The SEC protects the identities of whistleblowers, which is one reason it doesn’t disclose details about the enforcement cases.

It is against the law for companies to retaliate against employers for turning whistleblower, and there are protections, as well as remedies in place in the event of retaliation. Whistleblowers who provide the SEC with unique and helpful information that makes it possible for a successful enforcement action rendering over $1M in monetary sanctions are entitled to 10-30% of the funds collected.

FINRA Fines 12 Firms, including RBS Securities, Wells Fargo, and LPL Financial $14.4M for Record Preservation-Related Violations

Published on: December 22, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is ordering 12 firms to pay a collective total of $14.4M in fines over deficiencies involving the way they preserved customer and brokerage firm records. The firms who are subject to these sanctions include:

· RBS Securities (RBS) for $2M
· LPL Financial (LPLA) for $750K
· Wells Fargo Prime Services and Wells Fargo Securities (WFC) for a collective $4M fine
· Wells Fargo Advisors, First Clearing LLC, and Wells Fargo Advisors Financial Network for a joint fine of $1.5M
· RBS Capital Markets Arbitrage and RBC Capital Markets for $3.5M
· SunTrust Robinson Humphrey for $1.5M
· PNC Capital Markets for $500K

Under FINRA rules and federal securities laws, electronic records that are business-related have to be maintained in WORM format so that they cannot be modified. According to the US Securities and Exchange Commission, this is necessary to protect investors because monitoring compliance by firms occurs primarily through their records and books.

Morgan Stanley Settles Margin Account-Related Violations with FINRA & The SEC for $10.3M

Published on: December 21, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Two US regulators have fined Morgan Stanley (MS) for margin account violations that purportedly resulted in the firm using customer funds and securities for its benefit. The US Securities and Exchange Commission fined the firm $7.5M, while the Financial Industry Regulatory Authority imposed a $2.75M fine.

According to the SEC, Morgan Stanley used trades that involved customer money to decrease its borrowing costs. The Commission said that this violates the agency’s Customer Protection rule, which is meant to keep customer money and securities safe so that they can be given back to customers in the event that a brokerage firm were to fail.

The SEC said that from 5/2013 to 5/2015, the firm’s broker-dealer in the US used transactions with an affiliate to decrease the amount it had to deposit in its customer reserve account. Under the Customer Protection Rule, brokerage firms are not allowed to use affiliates to lower their customer reserve account deposit requirements.

SEC Files Charges Against Operators of Bogus Day Trading Firm that Bilked Inexperienced Investors Globally of Over $1.4M

Published on: December 21, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed securities fraud charges against Naris Chamroonrat of Thailand and American Adam L Plumer. The regulator contends that the two men ran a fake day-trading that collectively defrauded hundreds of investors in over 30 nations of over $1.4M. At least 180 of the investors are from the US, including several from New Jersey.

Chamroonrat purportedly recruited Plumer to bring in investors to engage in day trading via Nonko Trading, an unregistered broker-dealer. The firm promised low trading commissions, good leverage, and low deposit requirement minimums.

However, contends the regulator, rather than employing a live securities trading platform, the firm gave certain investors training accounts that simulated the execution and placement of their orders that were never actually sent to the markets. Instead, their money went toward Chamroonrat’s own expenses, payments to Plumer and others, and was used as Ponzi-like payments to investors who decided close their accounts. The Commission believes that the day trading scam purposely targeted novice investors who were more apt to make trades that were not profitable, less likely to attempt to take money out of their account, and more prone to assuming that their investment losses were from trading and not because of fraud.